NU Online News Service, Sept. 28, 2:20 p.m.EDT

Many European firms are unaware that under the European UnionEnvironmental Liability Directive they face giant cleanup costs forenvironmental pollution incidents, Aon brokerage is cautioningbusinesses.

This means, said Aon, that many concerns have gaps in theirliability coverage.

Simon Johnson, Aon's environmental director for UK and EMEA,said, "U.S. companies with European subsidiaries are becomingincreasingly aware of their potential exposures, and in turn we'veseen a higher take up for environmental liability insurance. We'reencouraging European risk managers to adopt a similar strategy inprotecting against uninsured environmental damage."

"Risk managers need to review the ELD and their operations inrelation to their insurance programs, as there will be gaps," headvised.

Aon said its Global Risk Management Survey 2009 foundenvironmental risk ranked lower as a concern in Europe than anyother region despite the introduction of the EU EnvironmentalLiability Directive.

The firm said it will be warning European companies next week atthe Oct. 4 Federation of European Risk Management Associationsconference in Prague "to wake up to the reality that thislegislation could see companies held liable for unprecedented costsfor clean up and restoration of environmental damage."

Mr. Johnson said there is a common misconception that theliability directive is just about ongoing operational pollutionissues. "The reality is the ELD significantly increases liabilityin the EU for operators that cause environmental damage, regardlessof how that damage is caused," he explained.

Mr. Johnson noted, "The fact that environmental risk ranked 32ndas a concern in the survey is worrying because risk managers areseemingly lulled into a false sense of security, believing theyhave no exposure or their pollution strategies are undercontrol.

"This ignores exposure to the impact an unpredictable one-offevent on the environment could have on the balance sheet. It'sabout preparing for the low frequency, high severity event byhaving insurance in place that covers all the risks, damages andlosses that could occur."

As an example of what kind of exposure could occur, Aon citedthe case of a riverside factory operation that catches fire due toan electrical fault with debris from the fire spreading to theriver and poisoning the local fish supply, damaging the aquaticenvironment.

Aon pointed out that the ELD, which became law in 2007 acrossthe EU, requires companies that cause environmental damage torestore the environment to its previous condition. In this case,the operator of the facility would have to pay for the cleanup ofthe area and restoration of the damage caused, includingreplenishing the fish stocks and re-establishing the aquaticenvironment.

The firm said this represents "a potential and significant gapfor European companies and subsidiaries under their existinggeneral liability policies. In response to the legislation, theinsurance market offers environmental liability programs and coverfor such damages, costs and losses."

While there is a minimum legal transposition of the ELD, somecountries have taken this further by introducing compulsoryfinancial security arrangements for the riskiest operators inindustries such as chemical production and waste management, Aonsaid.

The brokerage mentioned that Spain has set such a precedent andthe Czech Republic--FERMA's host country this year--is set tofollow in 2012.